Ford records a loss and abruptly turns away from automated driving

DETROIT, Oct 26 (Reuters) – Ford Motor Co (FN) reported a third-quarter net loss on Wednesday due to its decision to shift spending from the Argo AI self-driving business.

Ford’s move, a stark contrast to rival General Motors Co’s (GM.N) decision to double down on investment in its Cruise robotaxi unit, highlights the pressure on automakers to make tough choices as the financial demands of switching to electric vehicles continue to increase.

The two American automakers continue to post heavy losses on the development of automated vehicles.

Ford reported a net loss of $827 million in the quarter after taking a $2.7 billion pretax writedown on its investment in Argo AI.

Ford shares fell 1.6% in after-hours trading.

The automaker said Argo would be “liquidated” and “talented engineers” would be offered positions at Ford.

Argo’s other key investor, Pittsburgh-based Volkswagen AG (VOWG_p.DE), said it also plans to hire staff from Argo.

In a statement on Wednesday, Argo said it “will not pursue its mission as a business,” a decision that was made “in coordination with our shareholders.” He said some Argo employees would be fired.

Ford and VW each own about 39% of Argo, with Lyft Inc (LYFT.O) owning about 2% and the remainder held by Argo founders and employees.

Chief Executive Jim Farley said Wednesday that Ford would shift its development focus from fully autonomous systems developed by Argo to advanced driver assistance systems (ADAS) created in-house at Ford. Such systems are partially automated but still require humans to remain engaged as a vehicle moves.

“Mass-scale, fully autonomous, cost-effective vehicles are still a long way off and we won’t necessarily have to create this technology ourselves,” Farley said in a statement.

The U.S. automaker said third-quarter revenue jumped to $39.4 billion, up 10% from a year ago. Adjusted operating profit fell to $1.8 billion from $3.0 billion a year ago, but beat analysts’ consensus estimate of $1.7 billion.

Adjusted operating earnings per share of 30 cents beat analysts’ estimate of 27 cents.

Ford warned in mid-September that inflation-linked supplier costs were about $1 billion higher than expected.

GM reported net income of $3.3 billion on Tuesday on record third-quarter revenue of $41.9 billion. GM reaffirmed its forecast for annual net profit of $9.6 billion to $11.2 billion.

While GM executives were generally optimistic about the company’s earnings announcement, Ford was more cautious.

Ford Chief Financial Officer John Lawler in a briefing on Wednesday said: “We see the likelihood that we could enter a mild (or) moderate recession in the United States next year. We could potentially have a more substantial decline in Europe.”

Ford said it expects adjusted earnings before interest and taxes for the full year to be about $11.5 billion, up about 15% from a year ago, but down from its previous forecast of $11.5 billion to $12.5 billion.

Reporting by Joseph White and Paul Lienert in Detroit Additional reporting by David Shepardson in Washington Editing by Ben Klayman and Matthew Lewis

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